Paper Example on International Business Treaties

Introduction

The North American Free Trade Agreement (NAFTA) is a treaty signed by North American countries including Mexico, Canada, and the United States to create an economic block and promote trade. The history of NAFTA's treaty is traced back to President Ronald Regan proposed the need for a common and free North American market during his presidential campaign (In Boskin, 2014). After election to office, the Congress enacted the Trade and Tariff Act that gave the president powers to negotiate free trade agreements. The Trade and Tariff Act removed the Congress' power to alter negotiating points but was given the power to disapprove or approve the whole agreement. That act streamlined the negotiation process, especially for Regan's administration. Now with the power to control the negotiation process, Regan together with Canada's Prime Minister signed the Canada-United States Free Trade Agreement signed in 1988 which came into force in 1989. Regan's successor saw the need to expand the treaty and include Mexico. As such, negotiations were started and NAFTA was signed in 1992. Therefore, NAFTA was drafted to in accordance with international laws (Miller & Jentz, 2017) to replace the Canada-U.S. Free Trade Agreement and expand it to include Mexico.

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It is important to note that NAFTA was inspired by the European Economic Community established in 1957 which eliminated tariffs with the aim of stimulating trade between member states. In the same way, the proponents of NAFTA argued that creating a free-trade region would promote development by increasing trade volumes, production levels, and creating more job opportunities for the member countries. NAFTA was negotiated by the heads of states of the three countries that included George Bush (U.S. President), Carlos Salinas de Gortari (Mexican President), and Brian Mulroney (Canadian Prime Minister) (In Boskin, 2014). After long deliberations, the three leaders reached to a preliminary agreement in August 1992 and later concluded the deal on 17th December the same year by signing the pact. The agreement was then ratified by the legislative bodies of the three countries in 1993 and came into force in 1st January 1994 after President Clinton signed it into law on 8th December 1993 (In Boskin, 2014).

Provisions of NAFTA

NAFTA contained clauses that called for the gradual eradication of trade tariffs and other trade barriers between the member states. Some of the barriers were to be removed immediately and others were to be removed within a period of fifteen years. As such, the treaty enabled the access to a vast range of duty-free goods among the members. Goods imported from member states were categorized as "National goods" and local, state, or federal governments were not allowed to impose any taxes on them (Hussain, 2012). In addition, NAFTA contained clauses that sought to secure the intellectual property rights. The signatories were expected to follow the rules set to protect the intellectual property and implement watertight mechanisms to curb industrial theft (Hussain, 2012).

Other provisions in NAFTA included procedures for resolution of disputes between the signatories and the investors. The procedures allowed the investors to sue for compensation from any signatory that violated the terms of the agreement (Hussain, 2012). further, the treaty contained clauses about the likely effects of the labor market and environmental effects. In particular, the opponents argued that given that Mexico has low wages, many manufacturing companies from Canada and the U.S would be lured to shift their production plants there hence take away jobs from Canada and the U.S. Also, there were concerns that Mexico was an emerging economy that lacked capacity and experience to enforce environmental rules. However, such concerns were addressed through the creation of the Commission for Environmental Cooperation in 1994 (Hussain, 2012).

NAFTA and TTP During Obama's Administration

During the Obama administration, NAFTA produced mixed results. In other words, it did not meet the standards of a magic deal set by its proponents neither did it have significant negative effects predicted by the critics. However, Mexico seemed to benefits as its exports grew from $60 billion in 1994 to $481billion in 2014 and the U.S.-Canada trade increased to $518.2 billion (McBride & Sergie, 2018). The increase in exports came along with an increase in imports that comprised of goods of better quality and cheaper than Mexican goods. Despite these increases, it is unclear whether they are solely due to NAFTA.

The United States did not record significant economic growth. By end of 2017, Canada and Mexico were the second and third largest trading partners of U.S while China was the biggest trading partner. The proponents of the treaty argue that it has protected investors by enabling them to get compensation for government regulations that affect their businesses negatively. According to USA Today (2013), Canada and Mexico paid more than $350million damages to investors while the U.S had paid nothing.

According to McBride and Sergie (2017), NAFTA has benefitted the U.S economy by an insignificant proportion. Statistics by xxxx indicate that only an increase of GDP by 0.5% can be attributed to NAFTA. Even though the deal did not result in major economic impacts, it had huge impacts on other sectors such as the supply chain-related sectors. In particular, transportation has improved since NAFTA required liberal regulation of land transport especially licensing and processing of trucks via the U.S.-Mexico border (McBride & Sergie, 2017).

During the Obama administration, 4million jobs were lost due to NAFTA. That is attributed to the fact that majority of the U.S. textile companies moved their plants to countries with low wages. For this reason, the proponents of the treaty argue that the decline in jobs is due to globalization and not NAFTA. However, other deals like the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) were crafted as a way of reinforcing NAFTA. The TPP agreement was created with the aim of reducing trade barriers and develop standards between the U.S. and eleven other countries in the Pacific region. In the same way, the TTIP would accomplish similar goals to TPP but between the U.S. and the European Union.

NAFTA During Trump's Administration

Even during his presidential campaigns, Trump has always criticized the NAFTA deal and argued the need to renegotiate for a better deal. Many reports have blamed NAFTA for the decline in manufacturing jobs from 17 million in 1994 to less than 12.5million in 2017 (McBride & Sergie, 2017). It is not that the companies offering these jobs shut down but rather that they were moved to Mexico where manufacturing companies moved their production plants. Major companies such as Ford moved their plants to Mexico and President had earlier signaled the need to put a 35% tax on goods like Ford cars.

Immediately after assumption to office, President Trump issued gave an executive order that halted the involvement of the U.S in TPP. Then, Trump issued a statement that the U.S. would pull out of NAFTA if the agreement was not renegotiated in a way that favored his country. The major concern for pulling out of these treaties to bring back jobs shipped overseas. In August 2017, government officials from Canada, Mexico, and the U.S started negotiations for a new deal. Months later, little had been accomplished which created tensions between the states especially after Trump announced that he would introduce tariffs on aluminum and steel imported from Canada in April 2018. Trump's announcement was perceived to have the ability to cause a trade war like that with China (Leonard, Wingrove, Jacobs, & Mayeda, 2018).

In August 26th, 2018, the United States and Mexico announced to have come to an agreement about a new trade treaty which comprised of some aspects of NAFTA and introduced new components (Leonard, Wingrove, Jacobs, & Mayeda, 2018). One month later, Canada joined the new agreement out of fear of being left out. The new agreement was named the United States-Mexico-Canada Agreement (USMCA) will come into effect in 2020 after being approved in all countries' legislatures.

Compared to NAFTA, the USMCA has more benefits to the U.S economy. In particular, the new terms of the USMCA require that a car can only be exempted from tariffs only if 75% of its parts are manufactured in the member states. In the previous NAFTA deal, a car was exempted from tax if 62.5% of its parts were manufactured in the member states. Importantly, the terms require that not less than 30% of the work done on tariff-exempted cars must have been executed by workers paid a minimum of $16 per hour (Leonard, Wingrove, Jacobs, & Mayeda, 2018). The new terms of the USMCA will have more economic benefits to the member countries especially the U.S. than the previous ones.

The TPP (Trans-Pacific Partnership)

The Trans-Pacific Partnership (TPP) is a free-trade agreement signed between the U.S. and eleven countries bordering the Pacific Ocean. The agreement was signed by the member countries on 4th February 2016 after negotiations were concluded on 4th October 2015 (BBC, 2017). After signing, the agreement was to be passed by the legislatures of the member countries then come into force. However, President Trump issued an executive order on 23rd January 2017 that saw the withdrawal of the U.S. from the agreement before Congress could debate on its particulars. The Treaty comprised of the U.S., Australia, Peru, New Zealand, Vietnam, Mexico, Japan, Chile, Brunei, Malaysia, Canada, and Singapore. In total, these countries produce 40% of the world's gross domestic product, 26% of the total world trade, and constitute 793million consumers (BBC, 2017). Going by these figures, the TPP was larger than the USMCA which is currently the biggest in the world. However, it would have been smaller to the proposed Transatlantic Trade and Investment Partnership between the U.S and the European Union. The negotiations for the TTIP were halted after Trump assumed office.

The proponents of the TPP argued that the treaty would have provided a chance for the U.S. to intervene in trade disputes relating to the oil-rich South China Sea. In recent years, China has been expanding its military might to support its claim of the islands. That together with the need to create a counter-balance to the trade dominance of India and China in Eastern Asia were among the main reasons why China was deliberately left out of the deal.

Similar to NAFTA, TPP sought to eradicate trade tariffs on goods and services and establish reciprocal trade quotas. However, the deal was unique in that it removed non-tariff barriers to trade by harmonizing regulations. TPP covers a wide range of goods and services including telecommunications, food safety standards, and financial services. That way, the treaty disrupts the foreign policy and regulations of some member countries. For instance, the deal requires that member states establish an organization similar to the U.S. Office of Information and Regulatory Affairs (McBride, 2018).

Effects of Withdrawal from TPP on the U.S. Economy

After the withdrawal of the United States from the TPP deal, the remaining eleven signatories modified and signed a new agreement on 8th March 2018. The changes introduced suspended twenty provisions of the original agreement. Although China was initially left out, it has expressed willingness to join the pact, a move which would significantly alter the balance of international trade. On 12th April 2018, President Trump said that the U.S. would rejoin the agreement if he got a better deal than before. However, the member states have opposed...